Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Saturday, July 7, 2012

Chris Sagers responds to Max Huffman

Posted by D. Daniel Sokol

Well, Chris Sagers (Cleveland State) responds to Max Huffman. I'll take comfort in the fact that Max considers both me and Diane Wood wrong. Max and I differ in our judgment of the significance of the opinion for the ongoing saga of Twiqbal's effect on conspiracy pleading. As I said, I believe the significance of the Potash en banc ruling for conspiracy pleading is in the following three facts:

the en banc opinion does explicitly state a holding on the merits, as a matter of law, with respect to conspiracy pleading. On p. 29 of the slip opinion, Judge Wood said that "We are . . . satisfied that the allegations suffice, at this stage, to support a plausible story of concerted action." That's pretty unequivocal. And recall that defendants did in fact move for dismissal under Rule 12(b)(6) for failure adequately to plead conspiracy, and denial of that motion was before the panel and the en banc court. I think it is also telling that in support of that holding, the en banc Seventh Circuit cites the Text Messaging opinion. Why does Text Messaging support this one sentence in this separate lawsuit? Well, I take the message to be that the allegations of conspiracy in this case are just as good as the allegations of conspiracy in that other case. The original panel opinion contained an explicit Twiqbal holding that plaintiffs failed adequately to plead a conspiracy. See 657 F.3d 650, 661-64 (7th Cir. 2011). That holding, necessarily, was reversed by the en banc ruling. But really, I think the major significance of this opinion is atmospheric. As I said, it may be true that half of the opinion is devoted to technical details of FTAIA doctrine. But the other half is not. The first half of the opinion is an elaborate rehearsal of plaintiffs' pleadings that is openly, explicitly offered to show how substantial the evidence of U.S. price fixing conspiracy is in this case, even at this early stage.

As one parting thought, is it not interesting that the two circuit judges who joined the original panel opinion (the third panel member was a district judge sitting by designation) changed their minds and joined the en banc opinion? Including that one-line, explicit holding that the complaint adequately pleads a conspiracy? Just what exactly was said during en banc deliberation? Listen to Chris Sagers' interview here.

July 7, 2012 | Permalink | Comments (0) | TrackBack (0)

Interview: Max Huffman on Potash II

Posted by D. Daniel Sokol

Professor Max Huffman (Indiana University Robert H. McKinney School of Law) looks at the question of how we treat the extraterritoriality inquiry following Potash II. He also shares what Judge Wood got right and what she got wrong, and warns of a litigation scenario that may lie ahead for the Seventh Circuit. Listen to the interview here.

July 7, 2012 | Permalink | Comments (0) | TrackBack (0)

Federal Trade Commission Suffers Another Setback in Its Campaign to End Pharmaceutical Reverse-Settlement Agreements

Posted by D. Daniel Sokol

Aidan Synnott & William Michael (Paul, Weiss, Rifkind, Wharton, & Garrison) argue that the Federal Trade Commission Suffers Another Setback in Its Campaign to End Pharmaceutical Reverse-Settlement Agreements.

ABSTRACT: For over a decade, the Federal Trade Commission has sought, with little success, to end "reverse settlement" payments among manufacturers of branded and generic pharmaceuticals. On April 25, 2012, the Eleventh Circuit Court of Appeals dealt another blow to the FTC's campaign against reverse settlements. In Federal Trade Commission v. Watson Pharmaceuticals, the Court affirmed the dismissal of a complaint alleging that a reverse settlement payment, made by the holder of a pharmaceutical patent to two generic drug manufacturers, violated the antitrust laws. The decision renders reverse settlements "immune from antitrust attack" in the Eleventh Circuit in most circumstances, and further diminishes the FTC's chances of persuading other courts to adopt its policy position.

July 7, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, July 6, 2012

Eleventh Circuit Rejects the Strength of a Patent as a Criterion for the Legality of Reverse-Payment Settlements

Posted by D. Daniel Sokol

William Rooney & Jodi Lucena-Pichardo (Willkie Farr & Gallagher) discuss how the Eleventh Circuit Rejects the Strength of a Patent as a Criterion for the Legality of Reverse-Payment Settlements.

ABSTRACT: The Eleventh Circuit's recent decision in Federal Trade Commission v. Watson Pharmaceuticals, Inc. (the "AndroGel" decision) addresses the latest challenge to reverse-payment settlements. The Eleventh Circuit rejected the Federal Trade Commission's position that the lawfulness of a reverse-payment settlement depends on the perceived strength or weakness of the patent and concluded that a patent, unless previously invalidated, should be given its full exclusionary scope.

July 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Vertical Exclusion with Endogenous Competiton Externalities

Posted by D. Daniel Sokol

Stephen Hansen and Massimo Motta (Universitat Pompeu Fabra) explore Vertical Exclusion with Endogenous Competiton Externalities.

ABSTRACT: In a vertical market in which downstream firms have private information about their productivity and compete for consumers, an upstream firm posts public bilateral contracts. When downstream firms are risk-neutral without wealth constraints, the upstream firm offers the input to all retailers. When they are sufficiently risk averse it sells to one, thereby eliminating externalities among downstream firms that necessitate the payment of risk premia. By similar reasoning exclusion is also optimal with downstream wealth constraints. Thus exclusion arises when contracts are fully observable and downstream firms are ex ante symmetric. The result is robust to a number of extensions.

July 6, 2012 | Permalink | Comments (0) | TrackBack (0)

The effect of Stackelberg cost reductions on spatial competition with heterogeneous firms

Posted by D. Daniel Sokol

Matthew Beacham (University of York) addresses The effect of Stackelberg cost reductions on spatial competition with heterogeneous firms.

ABSTRACT: This article extends the theory of spatial competition by allowing firms to endogenously select their operating costs within a Hotelling (1929) framework. A three-stage duopoly model is examined in which the firms compete in cost reduction, locations and finally prices. Furthermore, it is assumed that firms are identical except with respect to their cost reducing technologies and one firm has a Stackelberg leadership advantage in the cost-reduction stage. The model implies two results that are unique within the literature. First, if a firm possesses both an efficieny and investment timing advantage, it always becomes the dominant firm in the product market in all relevant respects. Second, if an ex ante inefficient firm has an investment timing advantage it can only become the ex post market leader if and only if the a priori efficiency gap is not too large. Consequently, these results suggest that a firm's ability to in! novate - in terms of both efficiency and timing - play a large part in determining the composition of the final product market.

July 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 5, 2012

Due Process in EU Competition Cases Following the Introduction of the New Best Practices Guidelines on Antitrust Proceedings

Posted by D. Daniel Sokol

Anne MacGregor (Cadwalader) and Bogdan Gecic have written on Due Process in EU Competition Cases Following the Introduction of the New Best Practices Guidelines on Antitrust Proceedings.

ABSTRACT: Commission decisions have unprecedented legal and practical effects that require stringent procedural safeguards in order to satisfy due process. The current state of EU judicial review is as yet insufficient to counterbalance the far-reaching impact of Commission decisions. The Commission's recently adopted antitrust best practices package does not cure the inadequacies of the broader enforcement model and to some extent exacerbates the due process problem. The Commission's procedure could be reformed into a full two-tier system, modelled on robust Continental civil administrative systems, which would add to its actual and perceived fairness.

July 5, 2012 | Permalink | Comments (3) | TrackBack (0)

Entrepreneurial Commercialization Choices and the Interaction between IPR and Competition Policy

Posted by D. Daniel Sokol

Lars Persson, Research Institute of Industrial Economics (IFN), Centre for Economic Policy Research (CEPR) and Joshua S. Gans, Rotman School of Management discuss Entrepreneurial Commercialization Choices and the Interaction between IPR and Competition Policy.

ABSTRACT: This paper examines the interaction between intellectual property protection and competition policy on the choice of entrepreneurs with respect to commercialization as well as the rate of innovation. We find that stronger intellectual property protection makes it more likely that entrepreneurs will commercialize by cooperating with incumbents rather than competing with them. Consequently, we demonstrate that competition policy has a clearer role in promoting a higher rate of innovation in that event. Hence, we identify one reason why the strength of the two policies may be complements from the perspective of increasing the rate of entrepreneurial innovation.

July 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Vertical Relations and Number of Channels in Quality-Differentiated Markets

Posted by D. Daniel Sokol

Emanuele Bacchiega, University of Bologna - Department of Economics and Olivier Bonroy, Universite de Rennes I - Department of Rural Economy and Management describe Vertical Relations and Number of Channels in Quality-Differentiated Markets.

ABSTRACT: Double marginalization causes inefficiencies in vertical markets. This paper argues that such inefficiencies may be beneficial to final consumers in markets producing vertically differentiated goods. The rationale behind this result is that enhancing efficiency in high-quality supply chains through vertical integration may drive out of the market low-quality ones, thus affecting market structure. As a consequence, restoring-efficiency vertical integration may reduce consumer surplus, even in the absence of foreclosure strategies by the newly integrated firms. From a policy standpoint, our paper suggests that input and/or customer foreclosure should not be considered as the only source of antitrust concern when assessing the effects of vertical integration.

July 5, 2012 | Permalink | Comments (0) | TrackBack (0)

League Structure & Stadium Rent Seeking - The Role of Antitrust Revisited

Posted by D. Daniel Sokol

David D. Haddock, Northwestern University - School of Law and Department of Economics, PERC - Property and Environment Research Center, Tonja Jacobi, Northwestern University - School of Law, and Matthew Sag, Loyola University Chicago School of Law have written on League Structure & Stadium Rent Seeking - The Role of Antitrust Revisited.

ABSTRACT: North American sporting teams receive enormous public funding for new stadiums after threatening to depart their hometowns, or by actually moving to a new town. Whereas English sporting teams neither receive massive public grants for stadium building, nor move towns. We argue that these differences are caused not by any inherent cultural or political cross-Atlantic variations; rather, it is the industrial organization of sports in the two countries - the structure of league control - that enables rent seeking by American sporting teams but not by their English counterparts. We support our claim with cross-country time series data contrasting American professional football and baseball stadiums with English soccer grounds, and by contrasting data regarding the stadiums of geographically flexible NFL teams with those of functionally immobile major collegiate football teams.

North American sports leagues are cartels: they control entry of teams, then collaborate to maximize effective rent seeking, stave off competition and keep prices high. In most of the world, entrance into leagues is based on competitive merit via a system known as promotion-and-relegation, whereby the worst performing teams in one competitive tier are demoted to the next lower tier at season’s end, and an equivalent number of top teams are promoted from the division below. The fluidity created by promotion-and-relegation severely undermines the credibility of a team’s threat to leave town, and creates alternative entry points into the league. This open entry mitigates pressure to engage in intercity competition over scarce team slots, and thus relieves the pressure to transfer wealth from the public to private sporting team owners through stadium funding.

The stadium rent seeking issue illustrates shortcomings in antitrust law in remedying problems at the intersection of market and political organization. While it is clear that stadium rent seeking stems from a competition problem in the U.S., it is not clear if there is an antitrust solution - it is questionable whether antitrust law can recognize or remedy this damage to taxpayers. Although the anti-competitive structure of American leagues provides the platform for stadium rent seeking, the harm that results is arguably a political injury and not an antitrust offense. Nonetheless, we argue that imposition of a promotion-and-relegation system would be the least intrusive means for the U.S. and Canada to limit sporting league cartel behavior to its proper functions, such as arranging schedules and defining homogeneous rules. The uncertain availability of promotion-and-relegation is a solution under antitrust law makes it all the more imperative for Congress to address this costly injury.

July 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 4, 2012

Federal Trade Commission Rejected in “Reverse Payment” Suit

Posted by D. Daniel Sokol

Kevin E. Noonan (McDonnell Boehnen Hulbert & Berghoff) has written on Federal Trade Commission Rejected in “Reverse Payment” Suit.

ABSTRACT: The Federal Trade Commission in recent years has identified a practice it considers to be a threat to consumers regarding generic drugs. This threat is posed by the practice of "reverse payments" in ANDA litigation. Typically, in these arrangements a branded drug manufacturer settles litigation with a generic challenger brought under the Hatch-Waxman Act and such settlements often involve a payment from the branded to the generic drug maker. In the FTC's view, such payments should be illegal as anticompetitive market behavior amounting to a restraint on trade and a violation of the antitrust laws. However, despite judicial, legislative, and administrative attempts to ban the practice, neither Congress nor the courts have been willing to do so. While a ban on what the FTC characterizes as "pay for delay" practices have been a part of the Obama administration's budgets for the past few years, nothing has come of it.

July 4, 2012 | Permalink | Comments (0) | TrackBack (0)

Countervailing Power and Input Pricing: When is a Waterbed Effect Likely?

Posted by D. Daniel Sokol

Stephen P. King, Department of Economics, Monash University, Economic Regulation Authority of Western Australia asks Countervailing Power and Input Pricing: When is a Waterbed Effect Likely?

ABSTRACT: A downstream firm with countervailing power can extract a reduced price from an input supplier. A waterbed effect occurs if this price reduction leads the input supplier to raise the price that it charges another downstream firm. Policy makers have been concerned that this waterbed effect could undermine downstream competition, and it was considered in detail in the 2008 UK grocery inquiry. This paper presents a simple but parsimonious model to investigate if and when a waterbed effect may arise. It shows that the effect may arise through optimal pricing behaviour, but that this critically depends on the nature of upstream technology, downstream competition and consumer demand. In particular, downstream competition tends to work against a waterbed effect, but convex upstream costs support the effect. The analysis is complementary to recent academic work on the waterbed effect that focuses on bargaining constraints.

July 4, 2012 | Permalink | Comments (0) | TrackBack (0)

Fines for Failure to Cooperate within Antitrust Proceedings – The Ultimate Weapon for Antitrust Authorities?

Posted by D. Daniel Sokol

Konrad Stolarski, Jagiellonian University - Faculty of Law and Administration asks Fines for Failure to Cooperate within Antitrust Proceedings – The Ultimate Weapon for Antitrust Authorities?

ABSTRACT: The aim of this article is to analyse a powerful competence available to antitrust authorities in Europe in the form of the imposition of fines for the failure to cooperate within antitrust proceedings. While fines of that type are imposed in practice very rarely, the article considers the existing decisional practice of the Polish antitrust authority as well as the European Commission, and presents the way in which their approach has evolved throughout the years. The article analyses also the question of the formal initiation of proceedings concerning procedural violations and the importance of the use of a uniform and fair approach towards the scrutinized undertakings, especially as fine graduation is concerned. For that purpose, the article provides also a comparative analysis of past proceedings conducted by the European Commission and selected judgments of EU Courts.

July 4, 2012 | Permalink | Comments (1) | TrackBack (0)

Tuesday, July 3, 2012

If You Can't Innovate, Litigate

Posted by D. Daniel Sokol

David Balto has posted If You Can't Innovate, Litigate.

July 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Polish Antitrust Experience with Hub-and-Spoke Conspiracies

Posted by D. Daniel Sokol

Antoni Bolecki, Wardynski & Partners has written on Polish Antitrust Experience with Hub-and-Spoke Conspiracies.

ABSTRACT: A hub-and-spoke conspiracy involves an exchange of confidential information primarily concerning future prices. The exchange takes place generally between competing distributors via a common supplier but a reverse relationship is also possible. The essence of hub-and-spoke lies in the fact that there is no direct contact between competitors – the party guaranteeing the information flow is normally the common supplier (distributor in a reverse scenario). A hub-and-spoke conspiracy was first identified and specifically described by the British Office of Fair Trade in 2003. There are currently several pending investigations concerning hub-and-spoke practices in a number of EU Member States including Germany, France, Italy and the UK.

Three cases of that type have been so far assessed in the Polish antitrust practice: Polifarb Cieszyn Wrocław (2007), Tikurilla (2010) and Akzo Nobel (2010). The main objective of this article is the reconstruction of hub-and-spoke conduct in Poland. Commented will also be issues such as: the connection between hub-and-spoke practices and ‘classic’ retail price maintenance; standard of proof, and duration of the agreements.

July 3, 2012 | Permalink | Comments (0) | TrackBack (0)

The Electric Power Industry and Competition Law in Japan

Posted by D. Daniel Sokol

Tadashi Shiraishi, University of Tokyo - Graduate Schools for Law and Politics describes The Electric Power Industry and Competition Law in Japan.

ABSTRACT: This essay describes the basic framework and perspectives on competition law for the electric power industry in Japan.

July 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Minimum Wages as a Barrier to Entry – Evidence from Germany

Posted by D. Daniel Sokol

Ronald Bachmann, RWI and IZA Bonn; Thomas K. Bauer, RWI, Ruhr-Universitat Bochum and IZA Bonn; Hanna Kroger, RWI discuss Minimum Wages as a Barrier to Entry – Evidence from Germany.

ABSTRACT: This study analyses employers‘ support for the introduction of industry-specific minimum wages as a cost-raising strategy in order to deter market entry. Using a unique data set consisting of 800 firms in the German service sector, we find some evidence that high-productivity employers support minimum wages. We further show that minimum wage support is higher in industries and regions with low barriers to entry. This is particularly the case in East Germany, where the perceived threat of low-wage competition from Central and Eastern European countries is relatively high. In addition, firms paying collectively agreed wages are more strongly in favour of minimum wages if union coverage is low and the mark-up of union wage rates is high.

July 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Competition and regulation in Italy

Posted by D. Daniel Sokol

Magda Bianco (Banca d'Italia), Silvia Giacomelli (Banca d'Italia) and Giacomo Rodano (Banca d'Italia) have posted Competition and regulation in Italy.

ABSTRACT: Insufficient competition remains a major obstacle to growth in Italy. The main culprits include the institutional environment and the regulations governing some economic sectors subject to market failures. As to the former, relative neglect of economic efficiency has produced an unstable and inconsistent regulatory framework, excessive administrative burdens, and an inefficient system of contract enforcement. Past attempts to reform this area have yielded poor results. As to the latter, regulation was satisfactory only in some sectors. The excessive number of activities in which some operators enjoyed exclusive rights to provide services and restrictive regulation hindered competition in professional services. Growing awareness of the importance of competition policies to foster growth has given new impetus to the implementation of a wide programme of liberalization and institutional reform.

July 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, July 2, 2012

Cervantes' Sequel: The FTC's Quest to End Pay-for-Delay Pharma Settlements

Posted by D. Daniel Sokol

Anne Layne-Farrar (Compass Lexecon) has written on Cervantes' Sequel: The FTC's Quest to End Pay-for-Delay Pharma Settlements.

ABSTRACT: We are drawing close to the thirtieth anniversary of the Drug Price Competition and Patent Term Restoration Act, better known as Hatch-Waxman, enacted in 1984. Among other things, the Act grants generic manufacturers the ability to challenge the validity of a patent covering a brand name drug without incurring the cost of actually entering that drug market or having to risk the enormous damages that would flow from a finding of infringement. In other words, Hatch-Waxman made it a lot easier for generic drug companies to take on big pharma patents. Not surprisingly, the generic drug sector blossomed in the wake of the Act. In 1984, generics comprised only 19 percent prescription drug volume and 36 percent of brand drugs had a generic competitor; by 2002, 47 percent of prescription volume was generic and nearly 100 percent of brand drugs faced generic competition.

July 2, 2012 | Permalink | Comments (0) | TrackBack (0)

The importance of technology in the consolidation of hospital markets. The case of the United States

Posted by D. Daniel Sokol

Nuria Mas (IESE Business School) and Giovanni Valentini (Bocconi University) discuss The importance of technology in the consolidation of hospital markets. The case of the United States.

ABSTRACT: Over the last years, technology has become a key element of competition in the hospital market. At the same time, this market in the US has experienced an enormous merger activity. In this study, we analyze the role that technology can play in this consolidation wave by focusing on how it can affect a hospital´s selection of a particular target. We analyze the selection of targets in mergers that took place in the US hospital market between 1985 and 2000. Our results show that technology is an important element for the competition in the hospital market and, as such, it plays a relevant role also in M&A strategies. We find that hospitals are more likely to choose targets that complement their technological holding, specifically when these are complex technologies and with favorable cost/benefits ratios. With this, the merged entity tends to become closer to a one-stop-shop hospital.

July 2, 2012 | Permalink | Comments (0) | TrackBack (0)